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Friday, March 16, 2018

Despite pledges to curb overproduction, Communist China continues to glut the world market with steel, aluminum, diesel, other goods, driving down prices, crippling competitors, leading to thousands more US jobs lost. China says it can't cut jobs because "jobs maintain social stability"-Wall St. Journal, May 9, 2015

China’s
continuing aid for unneeded factoriesis triggering a sharp rise in
trade disputes and protectionist sentiment, especially in the U.S.,
where trade has emerged as one of the pivotal issues in the U.S.
presidential election.

According
to a Wall Street Journal analysis of Chinese public companies, Chinese
government support includes billions of dollars in cash assistance,
subsidized electricity and other benefits to companies. Recipients
include steelmakers, coal miners, solar-panel manufacturers, and other
producers of other goods including copper and chemicals.

One
beneficiary, Aluminum Corp. of China, or Chalco, said in October one of
its units would shut down a roughly 500,000-ton-per-year smelter in the
far-western Gansu region as it struggled to make profits. Executives
prepped for thousands of layoffs.

Then
Gansu officials slashed the plant’s electricity bill by 30%, employees
say, and the factory was saved. Although a portion of capacity was taken
offline, most is operational.

“We’re
in full production now with 380,000 tons of capacity,” said Fei
Zhongchang, a company sales manager. Chalco’s press office and local
government officials didn’t respond to requests for further comment.

Late last month , U.S.
Steel filed a trade complaint against Chinaat the International Trade
Commission, alleging price fixing, trans-shipment via third countries to
avoid dutiesand cyber-espionage to loot technology off U.S. Steel
computers. China’s Commerce Ministry has urged U.S. authorities to
reject the complaint, and said allegations of intellectual property
infringement “are completely without factual basis.”

Officials say it is natural for complaints against China to increase as the country takes on a large share of global trade.

“As
the largest trader in goods, it’s quite understandable for us to have
so many” complaints, China’s Commerce Minister Gao Hucheng said
recently. “We need to take it as it comes and live with it.”

One
way of tracking China’s support is by looking at subsidies reported in
corporate filings on the country’s two main stock exchanges in Shanghai
and Shenzhen.

According to a
Journal analysis of nearly 3,000 domestic-listed Chinese companies in
2015, reported government aid rose to more than 119 billion yuan, or
more than $18 billion, last year compared with about 92 billion yuan in
2014.

Reported subsidies
have risen roughly 50% since 2013, based on figures from Shanghai data
provider Wind Information Co. Under Chinese accounting standards, such
aid can be cash or other perks like subsidized power or land, but
doesn’t include some other support, such as capital injections from the
government as an equity shareholder.

Recipients
include an ethanol producer that said it was promised as much as 40
million yuan ($6.1 million) in subsidies in the first three months this
year because of “grave operating circumstances.”

A
producer of titanium dioxide—which is used in products such as paint
and sunscreen—won about 28 million yuan ($4.3 million) in cash
assistance as it seeks to expand in the North America and elsewhere.

Another
company, Yunnan Aluminium Co., obtained nearly 500 million yuan ($77
million) in subsidies since late 2015, securities filings show. In the
first half of 2015, the company says its production of alumina—the
starting material for smelting aluminum metal—jumped 40%, even as
revenue sank amid weakening prices.

Company
representatives didn’t respond to requests for comment.

An official at
the provincial Department of Finance, which administered much of the
cash aid, saidit acted to protect Yunnan Aluminium’s 10,000 jobs.

Other countries, including the U.S., offer substantial support for struggling industries.

Experts
cite differences in China, which they say is less open about its use of
subsidies and more inclined to use them to promote exports.China has
repeatedly said it would shutter unneeded factories, without following
through.

The need for
capacity cuts in China has long been apparent. More than 40% of its
major steel companies were losing money in the first half of 2015,
according to the China Iron and Steel Association.

China’s
Ministry of Industry and Information Technology, which oversees the
steel industry, told the Journal in 2014 that authorities were already
“in the process of implementing” capacity reductions.

Since
then, Chinese crude steel production has fallen 2% year-on-year in
2015 to about 804 million metric tons. But industry experts in China,
the U.S. and Europe say a further 200 million metric tons of capacity—or
about 25% of China’s production—needs to be cut to restore market
balance. China’s steel exports jumped around 20% last year to 112
million metric tons, according to customs data.

Some
of the programs date back years, but others were active in the past 12
months, including subsidized export loans, the document showed.

“It’s the whole range of practices that keep these zombie companies alive,” said Roger Schagrin, a lawyer for U.S. steelmakers.

At
the time, a spokesman for China’s Commerce Ministry said restrictions
on Chinese steel would not solve the global overcapacity problem, and
encouraged Chinese steel companies to defend their rights." Other
Chinese products rattling markets include diesel fuel, with Chinese
exports rising nearly 80% in 2015 over 2014, according to customs data.
China has loosened restrictions to let private refiners export fuel for
the first time, given weak domestic demand.

While
U.S. energy companies shed staff, China’s by and large haven’t.
Refining giant China Petroleum and Chemical Corp., whose net profit
fell by 30% in 2015, told the Journal no employees have been laid off
since late 2014 when oil prices began to fall, and that it had “no plan
for any future layoffs.” The company, also known as Sinopec, employs
about 351,000 people.

China’s
aluminum production, meanwhile, rose to 32 million tons in 2015, double
the level in 2005. Exports soared to 6.7 million tons from 2.6 million
during the same period,helping push global prices down 40% in the past
five years. The number of smelters in the U.S. has fallen to four from
23 in 2000, destroying thousands of jobs.

Tensions
over lost jobs reflect wider frustrations that China hasn’t lived up to
all the promises it made when it joined the World Trade Organization in
2001.